Unless you’ve been in a coma for the last few years, you know that both Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) introduced cryptocurrency-mining specific GPUs. Recently, in a direct contradiction to earlier momentum, Bitcoin and the cryptocurrency markets are receiving a thrashing. Now deep into correction territory, the crypto investor’s focus has shifted from hitting new plateaus to salvaging whatever they can. Hardened veterans understand that extreme volatility comes with the territory, but what about chip makers, Nvidia and AMD? ?
As a quick refresher, mining is an algorithm-heavy process where computers compete to verify blocks of transactional data. The first to verify the data receives a cryptocurrency unit, such as Bitcoin, as a reward.
As you might expect, mining is an intensive process. Furthermore, the competition becomes all the more fierce as the mined cryptocurrency rises in value. If you have a slow computer, you are virtually guaranteed to waste a lot of electricity for nothing. To gain an edge, miners elect to use ultra-powerful GPUs. The top sellers are AMD and Nvidia.
Naturally, as Bitcoin prices soared to the moon, interest also shifted to NVDA stock and AMD stock. While not direct investments towards cryptocurrencies, their respective associations cannot be denied. AMD admitted as such in June of this year, and for good reason. Their primary focus is on their core gaming sector, but nobody turns down free money.
But now, as Bitcoin prices erode, the association is an unfavorable one. After the “king of cryptos” first hit $1,000 and then went on to collapse, it took down Nvidia and AMD. Potential miners got a case of the weak knees and fled to the nearest exit.
Could the same thing happen again?
Nvidia and AMD can Weather the Bitcoin Storm
Before I say no, I fully disclose the fact that I’m a strong advocate for cryptocurrencies. As evidence, I was one of the first people, along with my colleague Dana Blankenhorn, to speak consistently about Bitcoin and the blockchain on InvestorPlace. Furthermore, I’ve been buying this crypto slump, and will continue to do so.
Despite my obvious propensity for the digital markets, I still believe, for lack of a better phrase, that “this time is different.” I don’t think current shareholders of either NVDA stock or AMD stock have anything to worry about regarding cryptocurrencies. Here’s why:
First, when GPU sales for Nvidia and AMD took a hit after Bitcoin’s mercurial boom-bust cycle in 2013 and 2014, the concept of digital coins was very much a new phenomenon. GPUs weren’t marketed specifically for crypto mining; rather, it just happened that miners used Nvidia or AMD devices. Moreover, these chips weren’t necessarily efficient or effective for mining. Competing technologies ultimately hurt GPU sales at that time, not slumping Bitcoin prices.
Second, no correlation appears to exist among Nvidia and AMD stock, and Bitcoin. For the second half of this year, NVDA stock is up 17%, whereas AMD shares lost 2.5%. What might surprise lay investors is that Bitcoin is actually up 25% since July 1. Yet the most famous digital coin lost 36% over the last two weeks!
These performance metrics are simply all over the place. This dynamic clearly indicates that other factors besides cryptocurrencies impact Nvidia and AMD stock.
Finally, I’m not convinced that lower crypto prices weaken Nvidia and AMD processor demand. Corrections weed out the speculators and “Johnny-come-latelys.” This helps true proponents get more bang for their mining buck through competition elimination.